Speculation & Gold

[eri]

was austro stupid to buy 3kg when it was half this price?

would he be stupid to sell it now?

[Austrokiwi]

when do you think the bubble will pop Chris?


before or after Austro cashes in his 3kg?

As I mentioned before.... What I have now effectively cost me nothing as I sold half my original holding a couple of years back. I wouldn't make a loss now even if the price dropped to half what I originally paid ( US$300-350 oz).

[muppet]

Gold Forecaster Weekly E-Mail Snippet

Have Central Banks Lost Control of the Gold Market?
By: Julian D. W. Phillips, Gold/Silver Forecaster - Global Watch
You may be asking yourself, did the central banks ever control the gold market? Yes, indeed they did! The gold Standard was the ultimate system of control they had until it was dropped. Then President Roosevelt�s Administration took control of the U.S. gold market when he confiscated all U.S. citizens held gold. Ownership of gold was only re-permitted in the early seventies. Even then the �powers that be� declared that gold ownership was a privilege, not a right. That still holds. Few really appreciate the extent of central bank control over the gold market and gold price. We believe it is a critical aspect of the gold market and gold price, without which one cannot really understand the gold market.

A brief history of Central Bank control of gold
When Eurodollars appeared in Europe, European central banks were not happy and sold them for U.S. gold. Then President Nixon, in his infinite wisdom closed the �gold window� [After Europe had boosted their reserves after sending around 12,000 tonnes of gold across the Atlantic into European vaults]. In a mutually beneficial but clandestine accord, the world then saw the U.S. dollar rise to be the sole global reserve currency. It has continued to reign supreme because it is the only currency that is used to buy oil, oil that we all need.

Control lost
After 1971, gold began to rise in earnest as every man and his dog bought some, taking the gold price from $42.35 to $850. This was a public statement that the global investing public did not accept paper currencies with no gold to back them. These had become simply government obligations with no settlement date.

Central banks had to act to ensure the public accepted these currencies and were moved away from gold as money. To do that, the U.S. and by extension the I.M.F. decided on limited [limited because central banks still wanted it in their vaults as an important reserve asset] gold sales through auctions. All the gold sold there was snapped up. The reality of central banks wanting to keep gold then kicked in and the auctions were halted.

Control regained
Another tactic was then used. This time the central banks, lent gold to gold miners who used it to finance gold production. This caused a huge acceleration in the tonnage of gold coming to the market, too much for the market to absorb. The gold price fell right back to its 1999 low of $275. But the central banks technically still owned the gold as producers repaid their loans with gold from their mines.

At the same timed central banks supplied a well orchestrated campaign that implied central banks may well sell all the gold they owned over time. Markets and analyst swallowed the bait. The job of ensuring the U.S. dollar was the only solid, global reserve currency was then achieved without the interference of gold.

Then the time came for the Euro to enter the market in place of the European currencies, such as the French Franc, the Deutschmark, and the Italian Lira, etc. With the task made easier by the anti-gold campaign that ensured the acceptance of the U.S. dollar, the Euro was quickly established as the world�s number two currency. Nevertheless, the fear remained that Europeans would prefer gold, so the European central bankers made, to date, three agreements to sell a limited amount of gold over the next fifteen years [four years still to go]. Unexpectedly this removed the fear that central banks were selling the gold price down still.

The gold price turned around, miners over time bought back all their hedged positions [matching central banks sales in the process] and last year both the miners and the central banks let their sales and de-hedging dwindle to almost nothing [AngloGold Ashanti will still buy 131 tonnes of gold to close its hedge book].

Until last year [2009] there is no doubt that the gold market reacted to central bank policy on gold and moved the price accordingly. Let�s face it if they did really get rid of over 30,000 tonnes of gold the gold price would collapse. Central banks knew full well the implications of fears that they may sell gold. It would effectively ensure that hardly any investment in gold took place. This was control too!

Have Central Bank lost control again?
Close to the beginning of 2009 the European central banks let their gold sales dwindle. It became clear to all that there was no more appetite in the signatories to sell gold. The Euro was then fully accepted by all. Central bankers re-established the importance of gold by the cessation of gold sales. But European central bankers had made this clear in the first central bank gold agreement, called the �Washington Agreement�, which made it clear that all the signatories regarded gold as an �important reserve asset�. Consequently, they have been happy to see the gold price rise too. As Axel Weber, the head of the German Bundesbank said in the past, �gold is a useful counter to the swings in the dollar�.

By then the �credit crunch� had endangered the banking sector and spread into the Sovereign Debt crisis. The currency world did not seem so solid and gold was holding its highs and looked like rising even more. The attraction of gold to central bankers re-confirmed itself in such a climate.

Why is gold an important reserve asset? In times of international financial stress, gold will settle international financial obligations, when government promises won�t. We have now entered the time when financial stress underlies the entire global monetary system. Right now we are at the door of potentially major, global currency strife. This means that central bankers are no longer in a mood to sell their �rainy day� gold.

But they don�t control the supply of gold anymore. Their control since 1985 only went as far as to undermine the gold price. They have placed themselves in a position where they can�t even buy gold for their reserves. To do so may imply that they have accepted that they too are losing faith in paper currencies. That must never happen. So they sit with a firm grip on the 30,000 tonnes they now have, but have lost control over the gold price. That went the moment they stopped selling.

Control dispersed
As the rest of the world emerges and drains wealth and power from the West taking their foreign exchange reserves to unimagined heights, they now see the need to diversify away from the near total dependence they have on developed world currencies. They have so little gold in their reserves that in their citizen�s savings that they have embarked on a campaign to build up Chinese gold holding. India has already done that and topped up their reserves with 200 tonnes from the I.M.F. China in particular has a very long way to go before their gold reserves are adequate for reserve asset requirements.

Russia was the first to announce the intention to increase the gold component of their reserves. Mr. Putin then announced Russia�s intention to accumulate 10% of all its reserves in gold. It has taken a long time to even get part of the way there [see the Table Below].

China has made no announcement that it intends to achieve any particular level but is acquiring locally produced gold into an agency that, in time, will pass it to the People�s Bank of China and only then will an announcement be made as to what they have bought. This appears reasonable for if China were to announce any target level it would put a rocket beneath the gold price, so, in true inscrutable style they have simply announced increases in gold reserves well after the event. We do believe they are buying gold internationally too. Retail demand in China is way over local production levels [we guess-estimate, around 150 to 200 tonnes is being imported if not more, as the number of importers has been widely extended. We also know that China began buying gold around 2004 if not before then.

In addition, since last year, the number of central banks that have been buying gold has increased steadily. From the Middle East eastwards central bankers have come to the gold market. This new tide of demand is unlikely to subside for a decade if not far longer. Eastern demand is in the hands of half of the world�s population and the half that has always loved and respected gold as money.

Central Bank Control lost!
The developed world central banks were able to control the gold market in the days of the gold standard, because they acted in unison and legislated that control nationally [and by extension, internationally]. They nearly lost it when Europe was buying it from the U.S. until President Nixon closed the �gold window�. Then they lost control of the gold market after 1971 until around 1985. Control was then re-imposed by assisting in accelerating production and discouraging demand until 1999. Thereafter, central bankers had limited control through limited sales, which allowed for a steady rise in the gold price, right through to 2009 [$1,200].

The major breakdown of central bank control over the gold market and the gold price came when emerging markets came to the gold markets to buy gold. �Eastern� central banks are unlikely to cooperate in holding the gold price down because they need gold in their reserves. Central bankers of the world [developed and emerging nations] have vastly different interests. These are unlikely to meet in any accord over gold. Now, with faith in developed world currencies on the wane, gold is becoming a vital [not just important] reserve asset. The skill will be in acquiring sufficient volumes of gold, without skyrocketing the gold price.

Global central bankers are divided on gold, with some buying, others holding but almost no central bank selling. Without unity of intent, central bankers cannot control the gold market or its price, any longer. They are almost in competition with each other. Non-central bank investors are jostling central bank buyers for any available gold.

Central bankers have now lost control of the gold market. Can they get it back?

[muppet]

Gold = $1317

[eri]

$1320..........

[eri]

or maybe Ag

if Au

is not for you

http://www.economist.com/node/17151109

[Austrokiwi]

Interesting article but what time frame are they referring to with this:

Demand for silver is likely to keep rising in developing countries in particular: China, which used to export the metal, now imports it.


From 1500 to the earlier 1900s China imported silver.

[muppet]

The 10 biggest myths about gold

The 10 biggest myths about gold
The most malleable of metals has been a repository of value and a symbol of wealth for thousands of years. That doesn't mean investors understand it.
By Brett Arends, The Wall Street JournalGold has been the investment phenomenon of the decade. In the past 10 years, investors in gold have made nearly five times their money. Over the same time, Wall Street has gone sideways.
But few investments seem to attract more myths and hokum than gold and other precious metals. At the risk of inflaming those on both sides of the issue, here are 10:
1. Gold is overvalued. How can anyone know this? Nobody even knows what gold is worth, so it's impossible to say with any confidence that it's overvalued (or undervalued, for that matter).Some perfectly intelligent people, such as Dylan Grice, a strategist at SG Securities, argue that when compared with the ballooning money supply, gold is still low by historical standards. And even if gold is in a bubble today, it may have a long way to go. As I pointed out earlier this year, at a comparable stage the Nasdaq Composite Index ($COMPX), in 1998, and real estate, in 2003, still had a couple of years to run.
2. The smart money got out of gold long ago. Really? People have been saying that for at least five years. Yet hedge fund honcho John Paulson has got nearly $4 billion of his company's money in the SPDR Gold Shares (GLD, news, msgs) exchange-traded fund. George Soros has $650 million in the ETF. Every month, Merrill Lynch conducts a survey of the world's top fund managers. About six years ago, when gold was about $400 an ounce, I suggested they start asking the money managers about gold. Initially, they got few responses. Few cared enough even to venture an opinion. More recently, while interest has risen, the skepticism has remained.
For the past two and a half years, apart from a brief moment in early 2009, money managers have pretty consistently told the interviewers that gold was overvalued, and usually by a wide margin. During that time, it's risen from around $850 an ounce to nearly $1,300.
3. Gold is a haven. Remind me never to buy life insurance or a new set of brakes from someone who thinks this metal is "safe."
From 1980 to 2000, it lost more than four-fifths of its purchasing power. During the 2008 crash, it fell nearly a third. If that's safe, I'd hate to see volatile. Gold is just an asset, like anything else.
4. Gold is real money, while money created by the government is just paper. What nonsense. The only thing that makes anything "money" is that other people -- meaning society -- accept it as such. A fund manager was recently telling me about someone she knew who had bribed his way out of a crisis in Africa with bottles of liquor. She pointed out that, if society really fell apart, the best "money" would be the things people need, such as food, cigarettes and liquor.
(My tip for Armageddon? Stock up on Charmin Ultra Soft. You'll be amazed how valuable it becomes when we're down to leaves.)
5. Gold stocks are a more profitable way to invest in gold than metal. The most dangerous tense on Wall Street is the perpetual present. The reality: Gold stocks are sometimes more profitable and sometimes less so. It all depends on the price you pay.
For years, many big mining stocks were overvalued. The metal was a better bet. But during the 2008 crash, gold stocks plummeted even further than the metal. That left them an absolute steal. Anyone who bought the big miners at the lows has more than doubled his or her money in two years, and anyone who bought the smaller ones has quadrupled it.
6. Small gold-mining stocks are risky. Sure, any individual mining stock is very risky. Even one like NovaGold Resources (NG, news, msgs), which I recommended earlier this year. But a broad basket of small mining stocks, such as that tracked by the Market Vectors Junior Gold Miners (GDXJ) ETF, will be much less so.
And indeed, depending on the price you pay, small miners will at times offer a much better bet than bigger companies or the metal. (See point No. 5.)
Knowing the way the fund industry works, in a gold boom the small fry will probably be the last ones to get scooped up -- suggesting they offer a leveraged play.
7. Gold is a much better investment than other precious metals. Really? Why? Once again, it all depends on the price. Over long periods, silver and platinum seem to have marched in the same direction as gold. Over 20 years, silver has beaten gold by 25%, platinum by 5%.
But it hasn't been a steady move. At different points, one metal has risen much higher while another has been left behind. You could have made much better money taking advantage of these moves. There are now ETFs that invest in silver -- iShares Silver Trust (SLV) -- and platinum -- Physical Platinum Shares (PPLT). You aren't always stuck with just gold.
8. Gold has kept its purchasing power over thousands of years. Bah. It's hard to believe serious people repeat this. We can't even get reliable information from 50 years ago, let alone from ancient Rome. Did a toga under Caesar really cost 1 ounce of gold, the same as a man's suit today? Some claim it did. But what kind of toga? And what kind of suit? I can buy a suit for $300.
There is a widely circulated claim that in the Bible an ounce of gold bought "300 loaves of bread." One hesitates to assert a negative, but I have looked, and I have asked informed sources, and no one has so far been able to produce the relevant biblical reference.
Furthermore, even if gold had "kept its purchasing power over 3,000 years," that would merely mean it produced a real, inflation-adjusted return of 0%. Inflation-protected government bonds will give you inflation plus 2%.
9. Gold mutual funds are pretty much the same. Not a chance. You need to look under the hood. Vanguard Precious Metals and Mining (VGPMX) isn't even a gold fund anymore; Morningstar moved it to the natural-resources category, because it invests in general mining and related activities as well.
Most gold mutual funds don't even invest in gold itself, just the equities of mining companies -- further evidence that gold is scarcely over-owned. Morningstar analyst Janet Yang says that two which invest in both stocks and metal are First Eagle Gold (SGGDX) and Fidelity Select Gold (FSAGX). Other funds also vary in style. Oppenheimer Gold and Special Minerals (OPGSX), for example, tends to own a lot of smaller mining stocks and to invest in silver and platinum miners as well as gold. U.S. Global Investors World Precious Minerals (UNWPX) focuses on smaller mining stocks.
10. You should always have 7% of your portfolio in gold for security. This has become a shibboleth. But why 7%? If the other 93% of your portfolio collapses, that 7% isn't going to help much, even if it, say, doubles in price.
As usual, these things depend on the price you pay. Personally, if I thought the gold boom were going to continue, I'd rather bet by risking a smaller amount in high-octane, out-of-the-money call options on the SPDR Gold ETF or maybe the Market Vectors Junior Gold Miners ETF. Those give you the right to buy into the fund later, at a fixed price, if it booms. You have to put only a limited amount down. If prices fall, you'll lose that small stake. But if prices skyrocket, you can make many times your bet.
As an illustration: SPDR Gold Shares was recently at $125 a share. The $150 call options, good until January 2012, cost $6.50 per share. Your downside is limited.

http://articles.moneycentral.msn.com/learn-how-to-invest/the-10-biggest-myths-about-gold.aspx?page=all

[Realist]

So, who owns most of the private non-jewellery gold anyway?

[Austrokiwi]

8. Gold has kept its purchasing power over thousands of years. Bah. It's hard to believe serious people repeat this. We can't even get reliable information from 50 years ago, let alone from ancient Rome. Did a toga under Caesar really cost 1 ounce of gold, the same as a man's suit today? Some claim it did. But what kind of toga? And what kind of suit? I can buy a suit for $300.
There is a widely circulated claim that in the Bible an ounce of gold bought "300 loaves of bread." One hesitates to assert a negative, but I have looked, and I have asked informed sources, and no one has so far been able to produce the relevant biblical reference.
Furthermore, even if gold had "kept its purchasing power over 3,000 years," that would merely mean it produced a real, inflation-adjusted return of 0%. Inflation-protected government bonds will give you inflation plus 2%.

Good article.

On the point quoted above about gold. Gold was not the unit of account for Rome it was originally copper. The basic unit of account was an Aes ( copper) the term Aes ( some spell it "As") became ubiquitous with " money" An Aes was a pound made up of 12 ozs of Copper. I am not saying that gold and silver weren't used but that they were valued against a pound of copper. So if someone found a reference to how much a togo cost it would be in a denomination of a Aes. The sestertius ( a Silver coin) took over from the Aes later in Romes history.

Source: "Dictionary of Numismatic Names" Albert R.Frey


I believe ( I await to be informed other wise) that gold first became the basis of currency in the opening stages of the 19th century when the Brits adopted the Gold standard.....America and the rest of Europe only adopted it in the 1870s- 1890s. So the claim ( not made in the article) that gold has proved its worth over time "as money" can really only be used to cover 171 years.

[eri]

new record

us$1328

[Austrokiwi]

new record

us$1328

NEw record?


Its all a matter of perspective / A few weeks a gold an oz of old was worth NZ$1870.00 its now worth NZ$1784. The kitco web site has an interesting measure it equates the movement of gold against the US$ what it shows more often than not its not gold that has gone up but rather the US$ that has gone down.

[Realist]

Yes, but the NZ dollar tracks commodities and carry trade differentials though doesn't it!

[Realist]

Well, this is where I said it will turn around, will be interesting to see if I am wrong.

[eri]

new record

$1349

http://www.kitco.com/charts/livegold.html

it seems this run has been triggered by the bank of japan's decision to use the high yen to it's advantage by printing money it has no intention of quickly "retiring", if people want to pay a lot for these pretty new bits of paper, well let them, seems to be the idea

this action, in response to the near double-dip, is likely to trigger other central banks to also run the presses a few nights a week and so gold is being sought as a hedge

on speculation the BOJ's rate cut and an increase in its quantitative easing programme by up to 5 trillion yen heralds moves by other central banks that would help stimulate world growth.

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10678540